Consider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate?

Consider the following functions for consumption and investment: C = 1,000 + (2/3)(Y – T) and I = 1,200 – 100r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate?

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 6SQP

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